As their triumphal end-of-tour show draws to an end, Bonnie "Prince" Billy – the profane, witty, riveting enigma also known as Will Oldham – is on his knees, serenading Trembling Bells's Lavinia Blackwall, an angel-voiced siren dressed like an acid flashback. Their united bands are rollicking their way through a Trembling Bells song, "Love Made an Outlaw of My Heart", with Oldham singing the part normally taken by Alex Neilson, Trembling Bells mainman and the superlative drummer in both tonight's outfits. Neilson is at the back, grinning like all his Christmases have come at once. Blackwall looks pleased and rather nervous – as you might well be if you were being sung to by a man whose idea of blissful domesticity is "The smell of your box on my moustache" (the lingering sense-impression from "That's What Our Love Is", one of tonight's standout songs). Oldham, of course, has previous: long ago, he wrote the most heart-stopping beautiful song about incest ("Riding"). He has a tendency to wear his beard in pigtails.

Tonight, Oldham's facial hair is less feral; distance precludes any judgment on the scent of his 'tache. With his collection of tics and starts, Oldham still exudes the air of a man usually only addressed by outreach workers. And yet he is the grand master of alternative Americana, performing some of the most musically accomplished material of his long career.

Along for the wild ride are up-and-coming Glaswegian outfit Trembling Bells, the band surrounding improv/folk drummer Neilson, who has played with Oldham before. An outside tip for a Mercury nomination, the Bells missed out the other week because their label, Honest Jon's, did not actually enter their latest album, Abandoned Love, into contention. Wild speculation suggests that Honest Jon's supremo Damon Albarn has little time for the Mercury, having withdrawn Gorillaz from the running in 2001. Blur, of course, lost out in Mercury skirmishes with M People (1994) and Talvin Singh (1999).

We get precious little of the excellent Abandoned Love tonight, however. Beginning with a shanty, of sorts – "Adieu, England" – the Bells end their unconventional 60s pop set accompanied by three candy-striped female morris dancers. You might expect this sort of thing from an avant-folk band – the label of best fit for Neilson's outfit, who also draw equally from early music, circa 1540, country music, circa forever, and Dylan, circa 1970. But the folk Bells have not turned up tonight. The morris dancers are, instead, cavorting to a closing psychedelic jam so heavy that keyboard and guitar player Lavinia Blackwall's flowery purple dress starts to move like a lava lamp.

Blackwall has a stunningly versatile voice, moving from classically trained purity to a stentorian Grace Slick holler at will. Oldham makes great use of her, as a foil for his own increasingly authoritative singing. The three-way harmonies between Oldham, Blackwall and Cairo Gang guitarist Emmett Kelly tonight are breathtaking. At the start of Oldham's career, by contrast, his parched quaver conveyed the (marvellous) illusion of an existentialist Appalachian hillbilly. It also brought into focus his lyrics (also largely marvellous).

Over the past few albums, however, Oldham has also become an assured and lusty vocalist. Tonight, the virtuoso Kelly plays virtually all the guitar, freeing Oldham up to dance one-legged jigs. At the back, Neilson plays untethered rolls rather than drumbeats, and, on 'Someone Coming Through', he scrapes his drumsticks along his kit, re-creating the sound of fingernails on chalkboard, only more alarming. Bassist Shahzad Ismaily is a tall, intellectual presence, and occasional sax player DV De Vincentis fades in and out elegantly, like a mist.

The recent Cairo Gang album, The Wonder Show of the World, provides the foreseeable bulk of Oldham's source material, with incursions from 2009's Beware and 2008's Lie Down in the Light; greatest hits are not on the agenda. As ever, though, the restless and prolific Oldham reworks many of his songs. The unexpected treat tonight is a radically made-over version of "I See a Darkness", famously covered by Johnny Cash. But it's the good cheer and fluent consistency of his latterday songs, played by a great ensemble, that really resonates. Oldham's countryish music, then, may be gradually approaching mature conventionality. The man, on the other hand, remains resolutely untamed.